Further falls in yields to sustain capital value growth

With the euro-zone slowdown underway, we think that the ECB will loosen monetary policy before the year is out, meaning bond yields are set to remain negative for some time. As a result, yield compression in the office and industrial sectors has further to go over the next few years. Yields in the retail sector, on the other hand, are likely to rise on the back of weak rental growth prospects. Lower prime property yields, coupled with an upwardly-revised rental growth outlook outside of retail, should sustain euro-zone prime capital value growth over the medium term. Nonetheless, we expect to see total returns decline over the forecast period.